Let's Not Bring God Into the EMC-Dell Deal

On Tuesday, EMC lead director William Green promised during a presentation at the Goldman Sachs Technology and Internet Conference in San Francisco that Dell will close on its proposed $67 billion purchase of EMC "unless an act of God happens."

But God, as they say, sometimes works in mysterious ways — perhaps, as published reports now indicate, by throwing a monkey wrench into the $45 billion financing Michael Dell and his privately help company need to finalize the deal.

Money Trouble?

Reuters was the first of several sources to report yesterday that the deal has stalled, at least temporarily.

It was expected that Dell would price the first $10 billion of debt it needs to finance the acquisition by Wednesday. But that deadline has been extended until at least Feb. 15, a source told CMSWire.

Reuters reported the financing package was extended because of a slow order book. It cited the Chinese New Year as the main factor for the delay, noting that the holiday delayed approval of requests from foreign banks' home offices to participate in the financing.

This may make sense, or at least provide an excuse, because Temasek, an investment company based in Singapore, is one of the deal’s financiers according to the original press release announcing the acquisition by Dell.

Green made no mention of the possible delay Tuesday, stressing only that the acquisition teams "solved for something called 'certainty to close.'" He added:

"It's an incredibly complex set of legal and banking assistance to make sure that once you set on this path, you have arranged it so the deal is going to close, unless an act of God happens, essentially, because that’s the obligation we have to our shareholders, so, just working through all the things on certainty to close."

Complex It Is

EMC is a “federation” of tech companies, specifically EMC II, Pivotal, RSA, VCE, Virtustream and VMware. Some, like VMware, are publicly traded on their own. Others, like Pivotal, will likely be spun off as public companies after the merger.

Last October, EMC entered into an agreement to merge with Dell. The deal, according to Dell Chairman and CEO Michael Dell, will create "an enterprise technology powerhouse."

But he continued, "We really, truly believe that this was a fantastic and, indeed, the best alternative and an answer for our shareholders, our customers, and our people around the world, our 70,000 people around the world.

And I think with Dell, we get a better opportunity to capitalize on all these great things that are going to happen in information technology. It gives us great leadership in servers and storage and converged infrastructure and virtualization and software-defined data center and cloud platforms, areas of security."

Green added, "We had the opportunity to solve for building something great."

But everyone knows it takes money to build.

Potholes Here and There

It’s worth noting that Dell’s sale of Perot Systems, which is meant to help with the financing, has encountered a bump in the road. Why? Because Atos, a tech services company based in France, that looked to be an acquirer denied that it was interested last week.

“Atos formally denies the information published in the press related to its current involvement in the sale process of Perot,” they said in a statement.

It’s also unclear whether another thought-to-be Perot acquirer, Tata Consultancy Services, was still courting Perot Systems. The Economic Times reported that the companies couldn’t agree on the price tag.

There’s also VMware to consider. EMC owns around 80 percent of the virtualization company and things aren’t rosy there either. VMware has lost quite a bit of value since the deal was made. Its shares closed at $82.09, when the acquisition was announced, the stock price closed at $44.70 when the market closed on Thursday.

Dell is paying EMC shareholders $24.05 a share plus the value of 0.111 share in stock that tracks against the price of VMware stock. But as the price of VMware drops, this tracking stock — common stock issued by a parent company that tracks the performance of a particular division without having claim on the assets of the division or the parent company — also drops in value.

This has caused so much concern among EMC shareholders who are supposed to receive something called “tracking stock” as part of the deal, that several have filed lawsuits.

'Impregnated by Aliens'

Will the EMC-Dell deal ultimately close? Are we on the cusp of creating a technology powerhouse, as the principals involved have repeatedly claimed? Or will this be one more dream deal popped by the cold reality of financing, legal and regulatory pressures?

We will leave you with the unwavering words of Michael Dell, who spoke Tuesday at Dell’s Fiscal Year 2017 Field Readiness Seminar.

"You may have read a story that questions if this deal is going to happen. If you have, you’re wasting your time," he said to applause.

"The media business is under a lot of stress and their business model is sort of cratering. And what they do to survive in those tough times is they create something called click bait. They create an inflammatory headline. So and so was impregnated by aliens, or whatever, click on here to read about this story, see some ads, try to get some money."

So don’t fall for that, okay. There’s going to be those kinds of stories, just like there were during the privatization. Do you all remember when we were going private there were all kinds of stories and they basically turned out to be nonsense? So don’t waste your time with that."

We’re absolutely moving forward with the transaction under the original timeline, the original terms, at full steam ahead. And it’s not contingent on the share price of EMC or VMware. It is subject to a shareholder vote and regulatory approvals. But, we expect to close in the same timeframe that we announced before — (from) May to October."

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